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Thursday, August 4, 2011

Exporting Electricity: Smarter Guys In the Room

Diving into statistics doesn't always provide the expected result. It would probably be best to leave it at that and move on, but ... I think I owe it to some traders to update a previous column ... and it never hurts to try and find something interesting.

I've been trying to hold the government to account on the cost to Ontarians of our electricity exports, and I've been doing so using the IESO (Independent Electricity System Operator) data for hourly demand, hourly price (HOEP), and hourly import and export – which does come very close to reproducing the government''s claims. So at the end of May the government could say Ontario generated $30 million through net exports, and $136 million was 'made' that way on the year, because they use only revenue and ignore costs, and I could use the same data to say the 6.1TWh we had exported had cost Ontarians a quarter of a billion dollars more than the lucky export customers paid. These things on both sides of the argument are all true, but ... the HOEP isn't necessarily the price electricity is bought and sold for.

The National Energy Board (NEB) posts another set of figures – based on the reporting of entities licensed to trade electricity across borders. For data folks, the NEB is a stone age organization in terms of accessing workable data -- compared to the IESO. The data drips out after a 6-week lag, and only gets presented as a .pdf. However, the trends it shows may be important. Today, I've looked at the NEB data for Canada, and selected provinces, back to 2005 annually, and I've looked at 2011's end-of-May YTD figures, compared to the same period in 20101.

The differences between the data sets are quite large – and they are also not entirely comparable. The IESO data I noted earlier can be broken down to exports, but that includes Manitoba and Quebec interties, whereas the NEB is only USA-Canada trade (and isn't comparable to interties!). For May the NEB figures for Ontario's exports is $34.92/MWh and $38.76/MWh for imports. The total, including provinces, from the IESO data was a far lower $23.50 for exports, and $32.57 for imports. I've also tracked figures by interties, or connections to adjacent grids, calculated with the HOEP, for May, and those figures are even further off the NEB data ($22.39 import/$25.21 export). That could mean the NEB data is bad, but I suspect it means Ontario's traders, who I maligned in an earlier post reviewing only the 2009 NEB data, are doing a better job than I previously noted.

Ontario was the only major trading province to raise it's pricing on exports in 2010, and the only one that has increased the May YTD realized price/MWh for exports, if only to $39.53/MWh, (which is still about $32 less than Ontario's residents have been paying for Ontario electricity). Net revenue was $180 million on 4.5TWh of net exports. The revenue is an increase of $27 million from the previous year, and that compares to a decrease of $84 million in Quebec, and $58 million for all of Canada.

Ontario actually reacted quicker than most to the drop in demand that occurred across the continent. It reduced exports somewhat in 2009 – perhaps out of luck at having vacuum bulding outages at Bruce A and Darlington – and maybe again in 2010 due to a Pickering vacuum building outage during the spring, and low hydroelectric output in the summer.

The warning signals seem to be for those provinces planning to invest in export capacity. The US is not expecting a rapid rebound in electricity demand, nor does it plan on Canada providing electricity for it in another two decades time.

The data for all provinces is a warning for out traditional hydro powers, and Newfoundland. It has historically been asserted, and still is, that the reservoir hydro powers, Quebec, and British Columbia, should receive higher prices as they can sell into peak periods. Looking at the steepness in the decline of the pricing they are realizing, it might be prudent to explore the impact cheap natural gas, combined with stagnant demand at levels little changed for at least a decade, is having on peak period pricing right across the continent.

A blind spot from this data is the impact of the increasesed interprovincial Ontario-Quebec trade, excluded from the NEB figures. I have examined this elsewhere; it is now clear Quebec is the preferred destination for Ontario's midnight excesses of production, and Quebec becomes Ontario's preferred source of imports during the day. But I'd suggest this relationship shows exactly why the realized export pricing is decreasing, substantially, from the the big hydro exporters. The IESO data, for Ontario, shows that while Ontario's HOEP is dropping again this year, the drop is most significant during higher demand periods - when Quebec's hydro exports should be getting the highest dollar. Perhaps the US system operators are seeing this same trend:

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